Clients ask financial advisors the craziest things without knowing they’re making huge money mistakes. Some are horrific.
“I muffled my screams of horror,” said Jeffrey Silverman, co-founder and managing partner at Summit Group of Virginia, when a client shared an ugly situation. This client found out his wife, who handled the household finances, hid an out-of-control spending problem.
Unfortunately, the 55-year-old client found out as his kids approached college. The 529 college savings plans were wiped out. And the house that he thought was paid off had a big second mortgage. He asked his advisor a simple question: “Can I still retire at 60?”
Serial-spender spouses who secretly wipe out nest eggs is just one example of money mistakes. Others bet it all on cryptocurrency. Some invest every penny in a risky business venture. People think about doing crazy, reckless and stupid things to become the next Warren Buffett.
Financial advisors see daily not every person in America has a level head when it comes to money. Below, are some of the most outlandish real-life client requests and money miscues that financial advisors have faced. And also how they fixed them.
Wife Who Wiped Out Savings
What about the client with the wife that cleared out the family’s savings?
Silverman analyzed what was left. It was just his 401(k) and not much else. The advisor created a plan of how much needed to be saved for the couple to retire. While 60 isn’t going to happen, it’s not hopeless. “They are on track to retire at 67,” Silverman said. And no, the spouse is not in charge of the finances anymore.
Taxes Torture Tech Titan
One client had a huge gain in a tech stock. But he didn’t want to pay a big capital gains tax on the sale. To help reduce the taxes, he asked the advisor if he could sell the stock for less than what it was worth. That way the tax hit would be smaller.
Good idea? Nope. “I’ve always said there’s something about taxes that causes people to react more emotionally, and they will do anything to avoid paying a dollar in tax,” said Tim Steffen, director of advanced planning at investment firm Baird who got this doozy of a question.
Steffen nixed the idea. My answer should have been “Yes, and I’ll buy it from you — name your price.”
But Steffen explained that since tax rates are less than 100%, the higher the selling price the more you’ll walk away with after selling — even after paying taxes. “I presume (they) eventually sold their stock for the highest price they could get,” Steffen said.
Going Crazy On Crypto
One client’s 29-year-old son advised them to invest $2 million in ethereum. He asked the advisor if she could transfer the money out of their investment account. What could go wrong?
Kimberlee Davis, managing director and partner at wealth management firm The Bahnsen Group and author of “The Fiscal Feminist: A Financial Wake-up Call For Women” basically said, “umm, no.”
“Your son means well but he is leading you astray,” she said. “As your fiduciary advisor, I must advise against this investment especially given all that has gone on in the cryptocurrency world with fraudulent activity and extreme volatility.”
“Thank goodness the client listened to me and didn’t do it,” said Davis. “The son wasn’t too happy though.”
Big Inheritance Puts Hole In Pocket
One client came into a huge inheritance and figured they’d just wing it when managing it. They asked their advisor if that was OK.
“Wow! It’s not often you receive a large sum of money — there is a lot you can do,” Sophoan Prak, a financial Advisor at Vanguard told the client.
Prak’s advice: It may be tempting to spend the money at once. But you should consider paying for the more necessary items first in your current budget. This might include placing a specific amount into your retirement savings. But you might also pay off all your credit card debt.
Also, don’t assume all the money is yours “considering the tax payments that might occur through this new transfer of wealth, among others,” Prak said.
Athlete To Go All-In On Weed
An ex-professional athlete told his advisor he did a tremendous job saving during his playing career. As a result, he decided to invest 90% of his assets with a former teammate in a marijuana dispensary business.
His only question for the advisor was, “How much can I live on until this thing takes off?” The advisor, Silverman, shook off his “initial dismay.” And his fix?
They budgeted how much the athlete and family could spend based on the pension and annuity the league provided and the other 10% that he didn’t invest. The family “sold their $3 million home and downsized their lifestyle,” Silverman said.
The couple is now “living close to what they can afford, (but) fingers remain crossed for a boom in the dispensary business as the Band-Aids we have applied only last so long,” Silverman said.
“In some respects, this situation felt tragic and in other ways the couple working together to follow a path they truly believe in is refreshing,” Silverman said. “Now all we need is a financial happily ever after.”